Morning Notes

13/03/2018 Argonaut Morning Note

Market Update & Important Indicators
The Dow Jones Industrial Average fell Monday, dragged down by declines in shares of Caterpillar and Boeing. The blue-chip index dropped 0.6%, turning lower after rising as much as 113 points earlier in the session. The S&P 500 swung between small gains and losses, closing down 0.1%. The Nasdaq Composite climbed 0.5%, on pace to set a closing high for the second consecutive session. A strong earnings season alongside recent inflation data has supported stock prices. Still, some analysts said they were wary of being in a later part of the economic cycle, one in which the overarching interest-rate environment is shifting. Recent economic data and geopolitical news have triggered market swings, and analysts said the calm permeating much of 2017 was unlikely to return. Industrial stocks were the biggest decliners in the S&P 500, down 1%, as Boeing dropped 2.6% and Caterpillar fell 2%. The declines came as investors continue to assess the Trump administration's plan to impose tariffs on steel and aluminium imports. The energy sector also weakened as crude prices slumped. Inflation data have jolted stock and bond prices in recent days, and investors said they would be monitoring consumer-price index data from the Labor Department on Tuesday for more clues on price pressures. The U.S. gold price traded flat overnight, finishing at 1322.60 US$/oz.

European shares closed higher, with the Stoxx Europe 600 ending up 0.25% at 379.20. Friday's strong U.S. jobs data continued to buoy sentiment, as well as the U.S. Nasdaq index trading near record highs. German stocks outperformed, with the DAX ending up 0.6%. Falls in commodity stocks saw the U.K.'s FTSE 100 lose 0.1%. France's CAC 40 was just in positive territory, Italy's FTSE MIB was up 0.1% and Spain's Ibex 35 was up 0.4%.

In Asia, many stock markets rose at least 1%, following gains of a similar size on Wall Street. Japan's Nikkei finished up 1.7% despite a rebound in the yen, which normally dents the country's export-oriented companies. The yen was last up 0.2% against the dollar. Basic materials and oil companies led gains in Japan, catching up with late gains in oil prices after Asian markets closed on Friday. Hong Kong's Hang Seng rose 1.9% while South Korea's Kospi added 1%, sending both indexes to their highest finish in five weeks.

Australian stocks also rose for a 3rd days, though gains eased some into the close, in the process putting the S&P/ASX 200 at its best finishing level of the month. It rose 0.6% to 5996.10 amid a further 1.6% jump in energy stocks. They benefited from the 3% bounce Friday in oil futures. That sector is now off 2.5% for March and 7.4% for the year. Meanwhile, materials rebounded 1.1% as copper also jumped to end last week; Rio Tinto and BHP Billiton each climbed 2%. Meanwhile, the Aussie dollar extended Friday's gains against other major currencies, hitting its best level in a nearly a month against some.

The London Metal Exchange’s 3-month copper contract traded lower overnight, falling 0.7% to close at $6,913/t. The other base metals all finished lower. Tin prices closed down 0.2% to 21,430/t, whilst Zinc prices gave up 1.2% to close at 3,237/t. Aluminium prices slipped 1.5% to close at 2,069/t. Lead prices fell 1.4% to 2,343/t, whilst Nickel prices pulled back, losing 1.4% to finish at 13,623/t.

In this issue
Orbital Corporation (OEC) | 1H18 Results; Ceasing Coverage | SPEC BUY
Market Cap $33m | Current Price $0.43 | Valuation $0.60

The 1H18 performance (revenue $5.9m, net loss from continuing op $2.3m) was weak as expected, although the focus from now on UAVs gives us cause to be optimistic about a 2H recovery. Forecasting risk sees us pare back margins in future periods, dropping our valuation to $0.60 (prior $0.75), but still backs up a speculative buy call. We will be ceasing coverage of OEC following release of this note after a review of companies covered.

We will be ceasing coverage of OEC immediately following release of this note.

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